Between the Lines

"Of all unimportant subjects, football is the most important" – Pope John Paul II

The debt also rises

Posted by hakanrylander on April 24, 2009

With the recession hitting Britain hard all Premier League clubs have lowered or frozen the prices for season-tickets for next season. With one notable exception; Manchester United. As announced this week, we are the only club to ask all season-ticket holders for more money.

The decision is easy to understand from a simple supply and demand calculation. Old Trafford is full for every league game, so demand exceeds supply. It’s difficult to assess by how much, but probably 5,000 or 10,000 more tickets could be sold if there were more seats. It’s therefore very likely that OT will again be full for every league game next season, despite the higher prices. Even so, other clubs in similar situations, such as Arsenal, Chelsea and Spurs, have chosen to freeze prices.

The price-hike is estimated to bring in an extra £1 million from PL-matches next season. This is a lot of money by most people’s standards, but peanuts in comparison to United’s total revenue. With regard to long-term customer relations you have to be careful to choose the right moment to raise prices, and I believe United got it wrong this time. For a relatively small financial benefit they have strengthened the perception that their strategy is all about squeezing as much money as possible out of the customers.

And maybe that’s exactly what the strategy has to be, considering the huge debts the Glazers took on to finance their take-over of the club. The gravity of the debt-situation was again highlighted by the recent publication of the annual reports of the companies through which the Glazer family controls United. Despite a record turnover and great sporting success, the parent company Red Football Joint Venture Ltd reported a pre-tax loss of £44.8 million. The group’s loans rose to £699 million, and will continue to rise for many years because £176 million of the loans are “Payment in Kind” where interest isn’t actually paid each year, but instead added to the debt.

In short this means that the Glazers need the club to continue to generate a strong cash flow, while at the same time the total value of the club must increase to match the continously rising debt. To this end the Glazers have designed a growth strategy consisting of four key elements. I will assess this strategy in my next post.

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3 Responses to “The debt also rises”

  1. Are the prawn sandwiches going to be any bigger, that my main question!?

    Other clubs like west Ham have had the opportunity to follow the law of supply and demand and disguise it as a “give something back to the fans” meassure, which of course is rubbish.

    If supply and demand is NOT to be implemented, how should the ticket prices be calculated?

  2. hakanrylander said

    I’m a great fan of supply and demand. Honest. I just think that the timing of the price-hike wasn’t too clever from a public relations point of view. Maybe it’s an indication of the fact that the Glazers are worried about their debts.
    As for the prawn sandwiches, my understanding of the strategy is that they will become smaller and more expensive.

  3. […] by hakanrylander on May 20, 2009 As I’ve pointed out in a previous post, the huge and rising debt they took on to finance the takeover mean that the Glazers need United […]

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